Can I Get Car Finance Through A Private Sale?
Feel like you could maybe get a cheaper price by buying privately? 🤔 Quite possibly! But there are a few things to think about and watch out for. Private car sales make up a large proportion of car sales in the world. But when buying a vehicle directly from the owner rather than the dealership, you have limited car finance options. It might be a challenge to get funding from financing institutions due to the increased risk of fraud.
However, you can still get car finance from lenders, even with a private sale. Due to the risks involved, lenders will require you to sign more documentation and provide information about the seller. The financial transaction may also come with more conditions, to act as protection.
With this kind of arrangement, there is a third party involved, which could complicate things. Here are a few tips on how to go about it.
Types Of Financing
Getting car finance for a private sale is limited in comparison to dealership financing. When buying a car privately, this can either be a personal loan or via hire purchase.
Buyers source this type of financing from the bank or a credit union. With a good credit score, you are guaranteed funding.
Once the lender deposits money in your account, you can pay the seller the car's total amount. You enjoy full ownership of the car whilst you finish making the repayments.
Hire Purchase (HP)
With hire purchase finance, you get funds from a lender. You are required to pay monthly payments until the loan is complete.
The car will serve as collateral and can be repossessed if you default on any payments. If a lender loans you cash via this plan, they will need detailed information about your seller as well.
Tips Of Getting Car Finance For A Private Sale
Check Your Eligibility
Each lender has a set of requirements for car buyers before advancing the loan. First, they need to check your credit records to ensure you can pay back the loan.
The status of the car is also very essential. Some lenders have limitations when it comes to the age of the car or mileage. Therefore, you should check first whether they allow arrangements for a private sale.
If you are going for a personal loan from the bank, it’s best to get a pre-approval first. This step allows you to get the specifications of how much you can borrow and the interest terms. With a pre-approval, you can already start contacting sellers to kick start the sale process.
Buying a car through a private sale is not as secure as buying from a dealership. You are not protected to the same degree and it could be highly risky for the lender and for you.
One way to ensure that the car is in order is to have a trusted mechanic or car specialist check the car for you. Organisations such as the AA will do this for a fee. This process helps identify any issues and make sure everything is in order before making the purchase.
Furthermore, when getting a used car, check the online valuation sites to get an idea of the correct price. Adopting this strategy protects you from buying an overpriced vehicle. It’s also a fast way to identify all the potential issues before committing to a sale.
Do an HPI check to make the car isn't still the subject of a hire purchase agreement. There are a number of online sites that can do this for a small fee.
Check The Age Limits
Lenders have requirements when it comes to the age of the car. Some can finance cars as low as five years old while others can cover ones that are 12 years old.
Many lenders might not be prepared to finance old vehicles; therefore, it's essential to do your research before approaching them. Therefore, as you go car shopping, go for sellers who have cars that will suit your lender's requirements.
Compare Interest Rates
Your interest rate will depend on the length of the loan term. More extended loan periods translate to lower monthly payments but higher APR rates in the long run.
Used cars tend to attract high interest rates. This is because they are considered riskier to finance. Furthermore, since they are cheaper, the loan amount is usually smaller, which would prompt the lender to charge a higher interest.
Personal loans are usually unsecured. Because they do not use the car as security, you will be charged a higher interest rate to repay the loan.
Once you find the car you want and agree on a price with the seller, you can let the lender know. Provide all the essential car details to help with the valuation process.
You will also need to provide your details and the details of the seller. Details of your employment and income, and vehicle registration documents. Once this is approved, you can get the loan approved.
What Does The Seller Need To Provide?
Purchasing a private sale requires you to be very keen on details. The lending company needs to know the sale is safe before lending you the money. Therefore, you also need to know whether the vehicle is legally owned, and whether it’s been written off or stolen.
The seller should also share details about the car's age and mileage, which your lenders will require. A full-service history is also useful. If they hesitate to share the complete vehicle history, they might be illegitimate, and you should be cautious as a buyer.
Outstanding Car Loan Details
The vendor also needs to show evidence that the car does not have any outstanding debt. If you are financing a car through a private sale, the seller should share this documentation, to prove any loan has been cleared. The HPI check also helps to confirm this for you.
If this information shows there is an amount of money left to pay on the loan, then that needs to be paid off and verification provided to you. To avoid complications, it's best to purchase a car that has no outstanding loans.
Most buyers tend to choose to go for private sales because there's more room for negotiation on price, unlike a dealership. With the right credit score, you can approach a bank or dealership to help you get car finance for a private sale.
But be fully aware of the risky nature of this kind of transaction, which means that your interest rates will be high. It's essential to do your due diligence before committing to a sale.
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